Why This 4% Yield Deserves Another Look

Utilities stocks have generally been impacted harder than the broader market in recent months as interest rates have been on a slow and steady rise in North America. Expectations are that a rate hiking cycle may only just be starting, and interest rates could rise substantially higher in the medium term, should inflation pick up as expected.

As with any security, measuring how a company is expected to perform over the long haul requires making expectations with respect to variables such as interest rates.

With companies such as Fortis Inc. (TSX:FTS)(NYSE:FTS) seeing their stock prices decline substantially due to the fact that their higher than average yields are often look to as a substitute for fixed income securities, those bearish on the ability of central banks to continue to hike interest rates, or do so at a rapid rate, are beginning to look at the upside with holding excellent quality utilities at discounted prices and subsequently higher yields, such as Fortis.

Fortis is one of Canada’s oldest dividend kings, raising the company’s dividend distribution each year for more than 40 years.

The reason utilities companies are particularly well suited to being able to raise dividends for so many consecutive years in a row is the fact that the majority of the revenue earned by Fortis is locked into long-term contracts, making a 4% yield very attractive for long-term investors betting on this trend continuing for another 40+ years.